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The Reserve Bank of New Zealand (RBNZ) has surprised markets by cutting its benchmark rate by 25 basis points to 5.25%, the first reduction since March 2020. This unexpected move, which indicates a pronounced dovish stance, comes as inflation approaches the 1% to 3% target range.
(RBNZ’s Official Cash Rate)
Previously, rate cuts were not anticipated by the RBNZ until mid-2025. However, New Zealand now aligns with a global trend towards monetary easing, joining other central banks that have also implemented interest rate reductions. The early rate cut which is ahead of the RBNZ’s prior forecasts has led to a decline in the kiwi. NZD/USD pair dipped 1.34%, closed at 0.59960.
(NZD/USD Daily Price Chart)
The central bank tempered its announcement with caution, underscoring that policy will need to stay restrictive for an extended period. Nonetheless, it projected that the cash rate would decline to 3.85% by the end of 2025. Market expectations for additional cuts mirrored the central bank’s gloomy economic forecasts.
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